Canada says won't use NAFTA to challenge U.S. on Keystone

OTTAWA (Reuters) - Canada is not considering a NAFTA challenge after the United States once again delayed its decision on approving TransCanada Corp's controversial Keystone XL pipeline, Natural Resources Minister Greg Rickford told reporters on Friday.

In recent weeks, some former senior officials in Canada have said that if U.S. President Barack Obama blocks the pipeline, Canada could launch a challenge on the grounds that the North American Free Trade Agreement guarantees Canadian exports unfettered access to the U.S. market.

Government sources have also told Reuters that there had been no political discussion in Ottawa about a possible NAFTA challenge, which would undoubtedly worsen already frayed bilateral ties over the fate of the pipeline.

The U.S. administration - under pressure from environmentalists to block Keystone - has repeatedly put off a decision on the northern U.S. segment of the project, which would move crude from the Alberta oil sands to the U.S. Gulf Coast.

"We're obviously disappointed that this has become politicized," Rickford said.

"We're hopeful that in the shorter term, rather than the medium or longer term, that a decision will be taken by the United States to move forward with the Keystone XL pipeline."

Last month the U.S. State Department announced a new delay, effectively putting off a final decision until after November 4 U.S. midterm elections.

The Canadian government has regularly urged Obama to approve the pipeline, saying it would create jobs and ensure a safe energy supply.

Rickford declined to speculate when asked whether Ottawa would be within its rights to pose a NAFTA challenge if the United States eventually decides to veto the pipeline.

"Whatever circumstances politically are prevailing in the United States, I'm not under any impression that this project wouldn't go ahead," he said, adding that he would be raising the matter with U.S. Energy Secretary Ernest Moniz at a meeting of Group of Seven energy ministers in Rome next week.

"I'll be reminding (him) that on environment, on the science, on the facts, on the business case, Keystone is a great and safe way for the benefit of Canada and the United States and we just need to move forward as expeditiously as possible," Rickford said.

(With additional report by Randall Palmer; Writing by David Ljunggren; Editing by James Dalgleish; and Peter Galloway)